If you’re in the process of refinancing your home mortgage loan you may be concerned about paying junk fees at closing.
It’s true that there are a number of fees you cannot avoid when refinancing your home loan; however, there are also a number of fees from the broker and lender alike that are pure garbage.
Here are several tips to help you avoid overpaying at closing when refinancing your home mortgage loan.
What Are Mortgage Junk Fees?
Simply put a mortgage junk fee is one charged by your lender or mortgage broker that serves no purpose other than boosting their commission or profit margin on your home loan. In order to avoid paying junk fees at closing you’ll first need an accurate assessment of what fees you’re being charged on your new mortgage loan. Nailing down an exact list of mortgage fees isn’t as easy as you might think mainly due to the deceptive practices used by many lenders and mortgage brokers today.
Should You Trust Your Good Faith Estimate?
The short answer is no, absolutely not. The Good Faith Estimate or GFE for short is just what its name implies… an estimate. Lenders are required by law to provide you with a copy of the Good Faith Estimate within 24 hours of receiving your application; however, there is little required beyond that. After all, the Good Faith Estimate is just an estimate of your closing costs and fees given in “Good Faith.” Truth be told, the Good Faith Estimate, like its shifty cousin the Annual Percentage Rate is little more than a marketing tool used to dupe homeowners into high priced mortgage loans. Ouch! (Well…it’s true!)
What About the Annual Percentage Rate?
Should you rely on the Annual Percentage Rate (APR) when comparing loan offers? After all, the APR is required to be disclosed under our current Truth in Lending Laws; however, like the Good Faith Estimate there is no standard for how your lender is required to calculate APR or even what fees they are required to include in whatever calculation de jour they are using for your home loan. Make no mistake… APR is completely worthless when comparing loan offers. Don’t be duped by your mortgage broker or lender into choosing a home loan based on the Annual Percentage Rate… it’s a sure way to overpay for your mortgage.
How Do You Evaluate Mortgage Loan Offers?
If the Good Faith Estimate and Annual Percentage Rate are worthless when it comes to rooting out mortgage junk fees, what should you rely on before closing on a mortgage loan? Most people go about choosing a mortgage like they would a bottle of ketchup in the grocery store. While it’s true that mortgages are retail products, printing out a list of loan offers and comparing them line-by-line to choose the “best” home loan isn’t necessarily going to work. The reason for this is simply that everything you’re offered prior to closing is slanted from a marketing perspective (GFE and APR). You won’t know what your actual charges and fees are going to be until you get your hands on the HUD-1 Settlement Statement which doesn’t help you in the comparison shopping department one bit.
How to Shop for a Mortgage Loan
The best way to refinance your home isn’t to focus on finding the best loan offer or lender like you might think, but to focus your efforts on finding the right person to arrange your new home loan. This might seem counterintuitive to most; however, let me explain my reasoning. With the exception of bank originated mortgage loans which are a whole other ball of wax that you’ll want to avoid for very good reasons that I can get into later, home loans are retail products resold by mortgage companies and brokers from wholesale lenders. Many of the fees you’ll encounter at closing come from the Mortgage Company or broker and are not required by the lender behind your loan.
That’s right, the junk fees you encounter have nothing to do with your home loan and ultimately end up in the mortgage broker’s pocket just to boost their commission at your expense. This is why finding the right person to arrange your loan is more important than slogging through home loan offers to find the lowest mortgage rates or fees. There are a great number of honest mortgage brokers willing to refinance your home loan for a one percent origination fee without marking up your mortgage rate for a commission or slipping in junk fees at closing.
Mortgage Broker Junk Fees
So what are some of the junk fees you’ll want to avoid when refinancing your home loan? One of the most notorious mortgage broker junk fees is the so called “rate lock fee.” There isn’t a single mortgage lender on the planet (not counting banks or credit unions of course) that charges a fee for locking in your mortgage rate. If you’re working with a mortgage company or broker that wants to charge you a fee for locking in that “really awesome” mortgage rate, you can be sure that this fee is going straight into that person’s pocket.
Never agree to pay a fee for locking in your mortgage rate AND make sure you get written confirmation of your rate lock from the lender, never on your mortgage broker’s letterhead. The reason you want written confirmation from the lender and not the mortgage broker is that your rate lock confirmation will tell you if the broker marked up your mortgage rate for a commission. Many brokers hide the fact that they’ve marked up your mortgage rate by typing up a bogus rate lock confirmation on their company letterhead.
Some other mortgage junk fees include mortgage broker courier fees which are another made up fee headed right into the broker’s pocket and to some extent loan processing fees. For a full list of mortgage broker junk fees you are likely to encounter at closing register for my Underground Mortgage Videos.
Hidden Mortgage Junk Fees
There is one commonly misunderstood “hidden junk fee” that can result in overpaying thousands of dollars for your next home loan. This fee is known as a POC or Paid Outside of Closing Fee found on your HUD-1 Statement. Paid Outside of Closing is a fancy way of saying “Paid Under the Table” and is a kickback for your broker marking up your mortgage rate. Also known as Yield Spread Premium, this is a fee paid by the lender when your mortgage broker locks and closes your home loan with a higher than necessary mortgage interest rate. This higher than necessary mortgage rate results in a higher than necessary mortgage payment… leading to overpaying thousands of dollars every year that you keep your mortgage loan.
Yield Spread Premium is such a big problem in the United States that the Secretary of Housing and Urban Development blamed it for fleecing American homeowners out of Sixteen Billion Dollars this year alone. The problem with Yield Spread Premium is that most homeowners don’t know how to recognize it or understand how it drives up their monthly mortgage payments unnecessarily. Don’t be a victim of Yield Spread Premium when refinancing your mortgage loan…
You can learn more about avoiding mortgage junk fees when refinancing your home loan, including the hidden junk fee known as Yield Spread Premium by checking out my Underground Mortgage Videos. Register today and you’ll have immediate online access to the mortgage videos without downloading anything to your personal computer.